1.  What type of costing system do most service businesses use, and why do they use it?

The type of costing system that most service businesses use is the job order costing because the
amount and complexity of services provided can vary substantially from customer to customer.

2.  Distinguish between a direct cost and an indirect cost when the cost object is the job.

The difference between direct cost and an indirect cost is that when the expenses can be
specifically traced to an individual job, these are direct costs. These would include professional labor
dollars, travel expenses, photocopying and long distance telephone and fax charges. On the other hand,
indirect costs are expenses that cannot be easily identified with a specific job and have to be allocated
to the job, using a cost allocation base. These would include secretarial support, employee fringe
benefits, and various office expenses.

3.  What are the elements of a cost performance report?

Cost performance report compares the budgeted costs for a job to the actual costs incurred and
indicates the variance, or difference, for each line item.